In The Merchant of Venice, the hostility between the Jews, in the form of Shylock and, the Christians, in this case Antonio is obvious. Shylock has recognised an opportunity to avenge some of the wrongs done to "my tribe" so thinks about something other than money that would perhaps make Antonio look like a fool by agreeing to it. The deal between Shylock and Antonio is almost sealed and they are shortly to confirm the terms. Now is Shylock's chance, despite Antonio saying they are basically "enemies.":
I will agree to do it and show this kindness. Let's go to the lawyer ("notary")and "seal me there your single bond" - sign the agreement for this once-off loan. To add some "merry sport" or humor, if you do not maintain the conditions and repay me on the day, in the place and in the correct sum, there will be a "forfeit" which is a penalty, to pay. I will then be entitled to take an equal pound of your "fair flesh" by cutting it off from any part of your body that I wish.
This was never really intended to become necessary as Antonio has every faith in his "argosy," his ships and, each party sees it as more of a joke. At least Shylock can imagine what he could do. Only later will it become the main focus of the progression of the plot that will drive towards Shylock's own ultimate ruin.